Court Told of Stewart Panic

The star witness in the Martha Stewart trial continued his searing testimony yesterday, recounting the businesswoman's sale of shares in the drug company ImClone and the panic which followed as she and her broker tried to hide that she had been tipped off improperly.

Douglas Faneuil, the former assistant to Ms Stewart's Merrill Lynch broker Peter Bacanovic, said that he spoke to the style icon on the afternoon of December 27 2001.

That morning the founder of ImClone, Sam Waksal, and his daughters had been trying to dump the company's shares; a day before regulators turned down the review of an important drug, it later emerged.

Mr Faneuil said Mr Bacanovic, who was on holiday, had instructed him to tip Ms Stewart off that the Waksals were trying to sell their shares.

Ms Stewart returned his call. "She said: 'Hi, this is Martha. What's going on with Sam?' I answered 'We have no news but Peter thought you might like to act on the information that Sam is trying to sell all his shares' ... I gave her a quote [on the ImClone price] and she said 'I want to sell all my shares'."

He then said he had lied to investigators about Ms Stewart's sale. He claims he was offered two extra weeks' vacation, a dinner for two in a New York restaurant and a return flight to Argentina as well as a cash bonus to stay quiet. Ms Stewart and Mr Bacanovic plead not guilty to obstruction of justice.

Mr Faneuil said that when the investigation began into the suspicious share sales Mr Bacanovic had told him in a feverish reply that the sale was "tax-loss selling" - tidying up an account at the end of the year to avoid paying capital gains tax. Later that story changed, he said, and Mr Bacanovic said there had been a pre-arranged "stop-loss" order at $60. "He just kept saying it again and again, that it was a stop loss order. At the end of the conversation he said OK? And I was silent. He said OK? And I said OK." When he returned from a week off in late January 2002, he said Mr Bacanovic called him into his office and said: "I've spoken to Martha and everyone's telling the same story."

The defence earlier petitioned to allow questions on Mr Faneuil's use of ecstasy and marijuana.